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Advertising Versus Sales In Demand Creation

Author

Listed:
  • Gal Hochman

    (Technion, Haifa, Israel)

  • Oded Hochman

    () (Dept. of Economics, Ben-Gurion University of the Negev)

Abstract

Using an analytical model, we investigate the dynamics of a firm with market power whose advertisements and sales contribute to its customers’ stock of goodwill. An advertising campaign precedes the firm’s sales when customers are not familiar with its product, (e.g., movies), whereas sales of a new brand of a familiar product may start without advertising (e.g. Crocs shoes). For constant demand elasticity, both advertising and sales take place from the start. Two different types of solutions then emerge: one for low demand elasticity and one for high demand elasticity. These solutions are analyzed by phase diagrams. We also perform a numerical sensitivity analysis.

Suggested Citation

  • Gal Hochman & Oded Hochman, 2009. "Advertising Versus Sales In Demand Creation," Working Papers 0904, Ben-Gurion University of the Negev, Department of Economics.
  • Handle: RePEc:bgu:wpaper:0904
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    File URL: http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/0904.pdf
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    References listed on IDEAS

    as
    1. Gary S. Becker & Kevin M. Murphy, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 941-964.
    2. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Dynemic Advertisement; Diffusion; Adoption; Goodwill; Learning by Buying; Phase Diagram;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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